Tightening global lockdown continued dominating weekend headlines. US President Trump turned his business as usual by Easter rhetoric into a quarantine extension until April 30 as the virus outbreak rages through the US. His top corona-advisor warned of a death toll between 100k and 200k, over 50 times the current amount of casualties. The current of negative news was countered by fresh stimulus measures in Australia and South Korea.

Brent crude hit a fresh multiyear low (<$23/low) as the double whammy (negative demand shock & positive supply shock) resonates through the market. The start of trading this week was is stark contrast with extreme volatile moves witnessed over the past weeks. Overall risk sentiment is mildly risk-off. Main European indices lose around 1% with Spain and Italy underperforming.

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Core bonds profit slightly. The US yield curve flattens with yield changes ranging between +1.9 bps (2-yr) and -3.5 bps (10-yr). The German yield curve bull flattens with yields losing 0.5 bps (2-yr) to 5.8 bps (10-yr). The German 10-yr yield confirms last week’s technical break below intermediate support (-0.43%), returning to the lower half of the broad sideways range since last Summer.

The German Council of Economic Experts expects GDP to shrink by 2.8% this year, the worst outcome since 2009. If restrictions are longer in place than the currently scheduled mid-May or production is further halted, the economy could fall as much as 5.4% (pessimistic scenario).

This week’s first eco print was March EMU Economic confidence. The indicator fell from 103.4 to 94.5, the softest level since 2013 with a less sharp drop than feared (91.6). Details showed a setback in all sectors, particularly in services and retail. Assessments of future demand and employment are negative.

10-yr yield spreads vs Germany widen by up to 6 bps with Greece (+12 bps) and Italy (+14 bps) underperforming. We don’t expect any widening to go very far with the ECB in control of credit spreads. Italian PM Conte warned for a growing anti-EU sentiment in his country. Longer term political implications are something to monitor.

A struggling dollar tries to stage a fragile comeback on the FX market. We are not impressed. EUR/USD declines from around 1.1150 to the low 1.10-area. The peripheral spread widening probably adds to the picture. We fear the dollar will face tough conditions later this week with releases of March (non-)manufacturing ISM’s, ADP employment report and payrolls.

EUR/GBP since last week is mainly the outcome of moves in GBP/USD and EUR/USD. Cable’s outperformance pulls EUR/GBP below 0.89 today despite this weekend’s UK credit rating downgrade by Fitch. Markets probably see this as the first of many, with E(M)U countries vulnerable to downgrades as well.

News Headlines

The Bulgarian government approved a plan worth 1 billion Bulgarian lev (more than €500 mln euro) to cover 60% of salaries from workers in companies who have been hit by the coronavirus, PM Borissov announced today. The plan of state support is conditional on approval by the EU.

The amount of cash commercial banks hold with the Swiss National Bank rose to a record 620.5b Swiss franc last week, data showed today. The increase was the largest since January 2015 when the SNB ditched the peg to the euro. It suggests the central bank intervened heavily in the currency markets to stop the Swiss franc from appreciating too much.

Hungary’s parliament has given prime minister Orban the right to rule by decree – thereby bypassing parliament. The ratio legis is to allow for a swift response to the Coivid-19 pandemic. The law contains no sunset clause, meaning it remains in place for as long as Orban deems necessary. EU Justice Commissioner Reynders said the EC will review the decision.


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